Universal life insurance policies may be in jeopardy

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Jun 28, 2011

People that purchased cash-value life insurance policies may be at risk of their plans lapsing, according to the Chicago Sun-Times. Some universal life policies were sold with the speculation that cash would build up within the plan over time. The problem is that low interest rates and a bad economy are wreaking havoc on these expected gains.

A study performed by Millman Incorporated, a Washington-based consulting firm, found that only 45 percent of people surveyed met their profit goals on universal life insurance policies with secondary guarantee products in 2009.

For people that own term life insurance this problem does not apply, the Times reports.

The projected cash accumulations from interest rates were supposed to subsidize premiums, but as the rates dropped, so did monetary accumulations. Premiums that people have been paying were based on planned future growth, and without that buildup people can be left with a negative or zero balance, according to the news outlet.

If this happens, policyholders may get a notice that their plan is going to lapse unless they come up with premiums that could be six times as high as what they had been paying.

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